Egypt's economy soars; so does misery

CAIRO

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CEO Steven Farris, 60, says Egypt in recent years has become much more "business-friendly." Proof can be found in the World Bank's annual "doing business" survey, which in 2006 ranked Egypt at No. 152 of 178 countries. After slashing red tape, Egypt made the biggest one-year gain of any country, rising to No. 126 in the latest survey, released in the fall. Significant progress was recorded in the ease of starting a business and trading across borders, the bank said. "It's a different place today than it was in '94. … Do I think they're going to continue on this road?" says Farris. "Yes, I do."

The trendiest mall

Egypt does less well on another annual ranking, Transparency International's list of countries based on executives' perception of local corruption. Of 179 nations, Egypt tied for No. 105 with countries such as Albania and Bolivia, according to the non-partisan anti-corruption group.

"If you want to succeed, you have to be in this circle of the rulers at all levels," says Yousef Zaki, 59, a local businessman who adds that bribes are a routine part of dealing with government agencies.

A continuing flow of foreign capital is critical for the government's hopes of boosting investment economywide. Investment now equals about 22% of total output, up from 17% three years ago, but still well below the government's goal of about 27%.

Egypt's location astride trade routes linking Asia, the Middle East and Europe is a key selling point when officials meet with potential investors. So far, the government has done well competing against nations such as Turkey for the right to host companies looking for an export platform to serve consumers in Africa and the Middle East. But it has lost out to fast-rising countries such as Vietnam when multinationals have evaluated potential locations all over the globe for high-tech research centers.

A large share of foreign investment has originated with neighboring Arab states that are putting their petrodollars into speculative real estate projects. Along Cairo's streets, billboards boast of the Towers Mall commercial project — "the trendiest mall" — and advertise residential developments for the city's affluent residents.

"The region is flush with money. Traditionally, this used to be destined for investments in North America and Europe," says Amer Kayani, a commercial counselor with the U.S. Embassy. "Now, these investors are increasingly looking at opportunities closer to home."

There's no question that Egypt has been remarkably successful in attracting foreign investment. But it's not clear how much of an impact the foreign capital has had on creating jobs throughout the economy.

Egypt's foreign investment — once heavily concentrated in oil and gas — has grown more diverse as investors have broken ground for factories producing fertilizers, chemicals and consumer products. But last year, more than one-third of foreign investment went into privatizations of large state-owned enterprises, such as the Bank of Alexandria and the Omar Effendi department store. Such deals typically lead to substantial job losses as bloated state payrolls are trimmed.

The past five years, the official unemployment rate has declined from 11% to about 9%. However, economists say that figure likely understates actual joblessness. And the government says it is unable to quantify foreign investment's effect on employment.